Does the Boehner Plan Include a Tax Increase Trap?

In an ideal world, GOPers would hold firm and not pass any debt limit until Democrats agreed to enact something like the Ryan plan/Cut-Cap-Balance.

But I’ve never thought that was a realistic strategy. When we got to the drop-dead point, Obama would have Geithner or Bernanke give an inflammatory speech designed to panic financial markets – at which point the White House would prevail because enough Republicans would panic (remember TARP?) and surrender.

This is why, even though there are several things I would have done differently, I think it’s reasonable to cut some slack for Speaker Boehner and House Republicans. They are trying to win a debt-limit fight when they can’t use the nuclear option and the other side controls both the Senate and the White House.

And this also explains why I haven’t criticized the new “Budget Control Act” proposed by Speaker Boehner. Yes, it’s grossly inadequate. Yes, it’s a bit gimmicky. And, yes, it basically kicks the can down the road. But is anybody under any illusion that something good can get past Harry Reid’s Senate and the Obama White House?

But there is one aspect of the Boehner plan that is causing me considerable angst. The plan would create a new super-committee of six Senators and six Representatives, and this bi-partisan group (equal numbers of Democrats and Republicans) would be responsible for proposing $1.8 trillion of additional “deficit reduction.” Congress would be obliged to vote on the package, and approval of that package would enable a further increase in the debt limit.

This sets off alarm bells. I hope I’m wrong, but here’s the scenario I envision:

2. Since only one Republican vote will be needed to approve the package (and because Senate Republicans are genetically incapable of saying no to awful deals), this package will be approved.

3. Harry Reid, recognizing a good deal (from his perspective) will immediately push the package through the Senate.

4. Republicans control the House, so theoretically the bad package can be stopped, but here’s where the trap exists. Failure to approve the awful tax-hike package will be portrayed as being critical in order to raise the debt limit and save America from default.

5. GOPers will capitulate, giving the Democrats more money to waste and dispiriting the Tea Party in an election year.

You can see why I’m a very dour person.

Speaking of the debt limit, here are two recent interviews on the topic. In the first clip, I talk with Neil Cavuto about debt-limit demagoguery.

And in this interview for Bloomberg Asia, I explain the debt limit fight in the context of the American political system.

21 Responses

A “default” won’t be as catastrophic as the pundits, certain pols and the MSM claim it will be. Say you bought a 28 day T-bill and it matures a few days after “D-day” (that’s default day). The government does not redeem the T-bill. What happens then? Why your friendly Wall Street speculator will offer to buy the T-bill from you at say 95¢ per dollar of face value. If the “default” lasts a bit longer, the friendly speculator will drop his offer to 90¢ on the dollar, and so on and so forth. There will always be a market for US Treasury paper and there will always be friendly speculators ready to take advantage and make big bucks.

So cheer up, Daniel. A default will be lots of fun and profit to the right people and may even help the good ol’ USA in the long term. You should get behind the Tea Party folks. Don’t be a feckless wus and give in.

The debt bubble has inflated. Now whoever adds the proverbial last straw and causes the bubble to pop will be blamed for the consequences of the implosion. Nobody will dare.

Look at Europe where any politician who even mentions the fact that the problem may be structural lack of competitiveness and growth, as opposed to temporary cash flow and wrong perceptions resulting from group irrational behavior, gets immediately blamed for triggering crisis by exposing the continent to the dark indomitable forces of speculators (who are basically stating in financial terms the obvious: “Think twice before you lend money to European Governments because it is not certain that there is enough incentive and economic vitality left amongst the European people to pay back both YOU and ALL the expected entitlements in the mid-long term”).

The same dynamics will play here in the US. Continue on the current, ever so unstable path, or be blamed for triggering what is increasingly becoming an inevitable crisis. No one of status will dare.

It’s all smoke and mirrors…Both parties want the same thing thing, more money to spend on wasteful expenditures that will never help the US economy. Both parties are dueling over how the outcome of the deficit equates to votes.
I believe both parties have their own best interests at heart and could care less what is good for the American people.

Will the American people ever again realize that our elected officials are out for themselves and not there for the best interests of the people. Please..think long and hard who you will vote for next year, not because you have always votes for a party line, but vote for what is good for the nation!!!!

[…] But the Democrats appointed a group of hardcore leftists to the Supercommittee, which means that it is virtually impossible to get the necessary seven votes for a good agreement. Indeed, the more relevant question is whether one or more of the Republicans surrenders to a big tax hike. […]

[…] I have sometimes wondered whether it is accurate to say that Republicans are the “Stupid Party.” We’ll soon know the answer to that question. As part of the debt limit agreement, the politicians agreed to set up a “Super Committee” comprised of six Republicans and six Democrats that are responsible for producing at least $1.2 trillion of supposed deficit reduction. But the Democrats appointed a group of hardcore leftists to the super committee, which means that it is virtually impossible to get the necessary seven votes for a good agreement. Indeed, the more relevant question is whether one or more of the Republicans surrenders to a big tax hike. […]

[…] this is one of those moments when I desperately wish I was wrong. I warned back in August that the Supercommittee was a tax increase trap. Republicans have this lemming-like instinct to jump off the cliff, even though they get taken to […]

[…] this is one of those moments when I desperately wish I was wrong. I warned back in August that the Supercommittee was a tax increase trap. Republicans have this lemming-like instinct to jump off the cliff, even though they get taken to […]